State budget deficit shrinks to $1.9 billion

SACRAMENTO (AP) — California’s nonpartisan budget analyst says the state now faces a much smaller deficit of $1.9 billion through the end of the next fiscal year and could even see surpluses after that.

The Legislative Analyst’s Office released a positive but cautious forecast Wednesday in the state’s first budget assessment since Californians last week approved Gov. Jerry Brown’s sales and income tax initiative, Proposition 30.

“The state’s economic recovery, prior budget cuts, and the additional, temporary taxes provided by Proposition 30 have combined to bring California to a promising moment: the possible end of a decade of acute state budget challenges,” wrote analyst Mac Taylor.

Taylor projected a much smaller deficit of $1.9 billion through the end of the 2013 fiscal year in July 2013, compared with the $15.7 billion deficit lawmakers faced earlier this year.

He said state expenditures will be $2.7 billion greater than forecast in the 2012-13 budget, partly because of overly optimistic projections for how much the state would get from the dissolution of local redevelopment agencies that Brown initiated. Taylor said the state will see about $1.8 billion less than expected.

The analyst’s report projects a surplus starting in 2014, thanks partly to Brown’s tax initiative, the state’s economic recovery and previous budget cuts, but he cautioned that the forecast is dependent upon a continuing steady economic recovery and strict spending controls by the governor and Legislature.

Brown, a Democrat, bet big this November by asking voters to approve Proposition 30, which raises the statewide sales tax by a quarter cent and boosts income taxes on the wealthy to help solve the state’s ongoing deficit. Voters, particularly minorities and those between the ages of 18 and 29, agreed.

The tax hikes are expected to provide an additional $6 billion a year for the state and deliver on a campaign promise Brown made two years ago to fix the state’s perpetual budget deficits and to raise taxes only if voters approved.

Proposition 30 raises the statewide sales tax to 7.5 percent for four years and income taxes rates to between 10.3 and 12.3 percent for seven years on income over $250,000 a year. The credit rating agencies Standard & Poor’s and Moody’s signaled their approval of the state’s financial picture after it passed.

The $91.3 billion budget lawmakers approved last summer called for about $6 billion in automatic cuts to K-12 schools and universities if the initiative failed.

According to the state finance department, tax revenues have largely been on pace with the state’s budget projections. Overall, revenues are $176 million below forecast, but October revenues came in $208 million above the month’s forecast.